Chinese Prime Minister Wen Jiabao began a 12-day visit of four European countries on May 2 in Germany amid growing international concern about the surging Chinese economy’s ability to cope with increased inflation and other weaknesses without bursting the bubble of growth which has fuelled much of the world in recent years.

Both 2004 visits seemed to underline the desire of the Chinese officials to stress the economic and political relationship with Europe, a trend also reciprocated by the visits to China by numerous European leaders. The lengthy 2004 visit also seemed to display a continuation of the close involvement of China and Europe to the generation of leaders in Beijing which took office in late 2003.

Wen Jiabao’s four-nation tour was a studied balance of politics and business, but also included a more relaxed human touch. In Italy, he spoke football with Prime Minister Silvio Berlusconi and sought out a factory worker at the Piaggio plant near Milan. But while the policy aspects tended to be largely a continuation of an essentially inconclusive dialogue, the economic front yielded concrete results that added further examples of the powerful attraction of the huge Chinese market and workshop.

The magnetism of China as an attraction for foreign investments and the growing importance of such high-level visits was clearly underlined in a spree of business deals, previously negotiated, wherever he travelled which must have amounted to €2-3 billion. He was accompanied by a delegation that was estimated at some 140 officials and Chinese business representatives.

In 2003, EU-China bilateral trade amounted to € 135 billion and China overtook Switzerland as EU 2nd trading partner behind the US after having overtaken Japan in 2002.

In addition, the often verbose and seemingly anodyne texts of joint bilateral and EU declarations prepared in advance and signed by the leaders on the occasion of the visit, sometimes could have far-reaching impact as action plans to further develop relations between China and European partners. In general, they tended to cover all or many public policy issues ranging from arms control and proliferation to environmental cooperation.

Although the Prime Minister’s visit led to numerous specific contracts and bilateral accords to underpin the relationship between Europe and China, it was taking place against a background of signs of tension and uncertainty about the future of the Chinese economy. The more general anxiety was related to, but overshadowed, the earlier, more specific interest in the possible revision of Beijing’s exchange rate policy for the Yuan.

Just before the start of Wen Jiabao´s European visit, stock markets throughout Asian plunged on fears that the Chinese economic boom which has become the motor of regional growth could be jeopardised by emergency measures taken by the Chinese Government the preceding week to curb bank lending and possible inflation. Combined with fears of possible increases in US interest rates which could undermine the emerging recovery in Japan and other Asian economies, the Asian markets reacted strongly.

Wen Jiabao in announcing the decisions, said that China needed to take “severe measures” to cool its overheating economy. Chinese authorities had previously ordered banks to halt lending to projects that were not approved by the state and there was widespread speculation that interest rates could be raised in the coming days.

This exacerbated the fears of a possible “hard landing” of the Chinese economy, with repercussions throughout Asia and other parts of the world. Much of Japan´s fledgling recovery has been said to have profited from exports to China and the USA recent report by the Asian Development Bank (ADB) said China had “become the largest single export market for East Asia,” and a major one for Southeast Asia as well.

Exchange indexes in Japan, Korea, Hong Kong, Malaysia and Jakarta immediately dropped precipitously on the news, demonstrating the growing dependence of the regional economies on China´s strong growth in recent months. The World Bank had also remarked that the Beijing authorities faced a difficult challenge in seeking to slow inflation which had reached an estimated annual rate of 10% and investment seen as out of control in some industries.

During the European tour, the Prime Minister and the large delegation accompanying him sought to ease these fears and the continued eagerness of Europeans to invest and trade with the country illustrated to some a reassuring sign, although Western and other firms had their own agendas on which profits rather than prudence was a priority.

Prior to his arrival in German, the Premier gave an interview to the newspaper Die Welt in which he underlined the important economic relationship between the two, that amounted to more than $41 billion a year, or one-third of the entire European figure, and he wanted to double by 2010 and place an emphasis on high-technology cooperation, SME contacts, training and increased policy consultation. Citing figures, he remarked that Chinese enterprises had invested in 7000 foreign ventures, 600 in Germany. While added that this did not approach the $10 billion invested in China by German firms in 7000 ventures, Chinese business was anxious to seek additional technological and administrative know-how in Germany.

In Germany, which has been China’s biggest trading partner in Europe, major firms such as Siemens, Daimler and others were anticipating the completion and signature of major ventures during the visit. At that time, Daimler announced May 3 that the Prime Minister had approved the company’s plan for a joint venture with Beijing Automotive Industry Holding to build some 25,000 Mercedes-Benz C-class and E-class sedans in China. The plan was worked out the previous week in China by Daimler-Chrysler chairman Jürgen Schrempp as part of the company’s new Asian strategy after he had previously been constrained to refuse assistance to its Japanese Mitsubishi partner.

The large German automaker was joining other German car industry players such as Volkswagen and BMW in China. Wen’s first stop in Germany was in Bavaria where he also visited Volkswagen’s Audi plant in Ingolstadt. Volkswagen at the same time announced plans for a new Shanghai factory, part of the company’s plans to invest €5.3 billion in China in the coming five years. This would in part lead to the expansion of the firm’s Shanghai operations with a new plant to produce 150,000 cars each year.

Also in Bavaria, the Munich-base electronic giant Siemens signed a major deal with Wen which would permit the firm to sell its mobile telephones throughout the country and not only in the major cities as was previously the case. Wen also visited a Siemens plant that builds power turbines that the firm’s president Heinrich von Pierer said it hopes to sell to China, which he called a “booming market” that adds the equivalent of a quarter of Germany’s electricity production every year.

These relations were further strengthened by the signature of an accord to double bilateral trade from the existing €50 billion annually by 2010 and by statements by Schröder that Germany favoured the one-China policy advocated and opposed the independence of Taiwan, while Wen said he supported German ambitions to become a permanent member of the UN Security Council. The German leader also said he favoured the lifting of the EU ban on exports of military equipment to China which had been raised by China and some EU members frequently in the previous year, without winning over other EU states opposed until further progress was achieved in China’s human rights policies.

Many of the same issues surfaced in Brussels, the second stop of Wen’s tour, when he met with Belgian and EU leaders.

Wen Jiabao and Romano Prodi witho Xilai and Pascal Lamy

During the visit to the European Commission, a high level trade policy dialogue was set up by EU Trade Commissioner Pascal Lamy and his Chinese counterpart Trade Minister Bo Xilai to address issues in bilateral trade relations as well as on WTO issues. Topics to be covered in this dialogue include multilateral trade issues, regional trade agreements, key bilateral trade issues or modifications of the regulatory environment in the EU and China which might have an important impact on bilateral trade. They also launched a forum to discuss trade in textiles such as clothing, in particular in view of the disappearance of remaining WTO quotas on textiles by 2005.

The EU textiles and clothing industry, as well as a number of their counterparts in developing countries, have expressed concern about the steep increase of Chinese exports of textile and clothing products to the EU over the past two years. They fear a surge when textiles quotas are abolished on 1 January 2005. China is the EU's largest supplier of textile and clothing products. In 2003 such imports from China represented € 12,3 bn or 17,5 % of total EU imports, and represented an increase of 8,3 % over 2002, of 18 % over 2001, and of 156 % over 1995. At present, imports from China still subject to WTO quotas represent 12 % of China's total

European Competition Commissioner Mario Monti and Chinese Commerce Minister Bo Xilai also signed an agreement on a structured dialogue on competition between the European Union and China. This is the first such competition dialogue initiated by China with a third country. The dialogue will, in particular, deal with: Antitrust law and enforcement, including exchange of views on new developments on legislation and on the fight against international cartels, Merger control in a global economy, Liberalisation of public utility sectors as well as state intervention in the market process, Technical and capacity building assistance to China in the area of competition policy. High-level meetings will take place at least once a year in Brussels or Beijing.

In addition to the government-to-government dialogue, an EU-China business dialogue was also set up.

There were some 800 meetings in two days between Italian and Chinese companies at this Confinindustria event involving manufacturing, particularly mechanics, components, fine and pharmaceutical chemistry, tourism, textile production and clothing. At Alenia Spazio, Wen Jiabao was welcomed by the leadership Finmeccanica. The Finmeccanica Group company was visited because of its role in Italy's hi-tech sector and the significant industrial cooperation between the two countries. China over the last years has indeed decided to increase its efforts in aerospace and has taken part in the European "Galileo" navigation satellites, a group of 30 satellites set for 2008. Alenia Spazio is a major element of this project. The company heads said that Finmeccanica wants to deepen its collaboration with Chinese companies, also via joint ventures, both to be directly present on that market and to sell Chinese hi-tech products in western markets, in particular for communications and civil aviation.

At the Piaggio factory during his official visit, he referred to the agreement recently made between the Italian company and the Zongshen group for the production of motorcycles. "In China, there are around 60 million motorcycles. They seem a lot, but in a country such as ours, with 1.3 billion inhabitants, there are great prospects. The new factory will have the capacity to make 600,000 motorcycles a year, and it can have great success."

To symbolize closer economic and trade ties between China and Britain, leading oil companies from the two countries, including BP, PetroChina, Shell and the Sinopec Corp. signed an array of contracts in London on May 11, involving a total investment of around $1.4 billion.

According to official announcements from the companies involved, a total of five contracts were signed. They cover the establishment of joint-venture oil retail companies between the Chinese and British companies in three provinces of China, the construction of an acetic acid plant by BP and Sinopec in eastern China, as well as the expansion of production at BP's PTA plant in southern China.

At a signing ceremony in London, BP agreed to invest around £471m to build and operate 500 petrol stations in the world’s most populous nation. It also pledged to expand its petrochemicals plant in China’s largest city of Chongqing and is looking at a similar project to boost capacity in the southern boomtown of Zhuhai. Other firms agreeing deals included rival Shell, which will invest £114m to manage petrol stations in the eastern province of Jiangsu in partnership with Chinese oil major Sinopec. State media reported that car ownership in China is set to increase five-fold over the next 17 years as the nation becomes more reliant on oil imports.

There are around 3000 joint ventures in China involving UK companies such as Shell and BP.

Kingfisher, which owns 15 stores in China, including the world’s largest B&Q in Shanghai, has agreed a strategic sourcing agreement with Midea Group worth £43m.

The ceremony was hosted by Trade and Industry Secretary Patricia Hewitt.

Britain and China agreed to hold annual Prime Ministerial summits, as part of moves to intensify their relationship in a broad range of areas, from trade and investment to illegal immigration. "We have agreed that we should step up our bilateral relationship," Prime Minister Tony Blair also said the work of the China-UK task force should be taken forward. The China-UK task force was set up in 2003 to forge closer contacts between Beijing and London. Wen said the British leader -- who has only been to Beijing twice since becoming prime minister in 1997 -- would be going to the PRC in 2005 "as a way of launching his summit mechanism". He added: "As long as we continue to respect each other and treat each others as equals, then all will be okay."

Wen and his Irish counterpart, Bertie Ahern, serving as the temporary president of the EU Council, agreed to make more efforts for the development of bilateral relations. During the talks with Ahern, Wen proposed that the two countries maintain the momentum of high-level visits, strengthen political dialogues and consultations, and step up cooperation in software and telecommunications, construction services, agriculture and animal husbandry, and cultural and educational exchanges.

Wen and Ahern also attended a signing ceremony of a memorandum of understanding on designating Ireland as an official destination for Chinese tourism groups. Wen attended a business breakfast and visit the headquarters of Iona Technologies, an Irish software company doing business in China. He also met with Irish President Mary McAleese before departing for Shannon, west Ireland, where he visited Shannon Development and the University of Limerick, the only university he called on during his European tour.